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GRAND RAPIDS — The United States may be undergoing an economic recovery, but the office market in West Michigan still has a recessionary flavor.

That’s the thrust of the first quarter 2004 edition of Office Market Trends for Grand Rapids by Grubb & Ellis Research and released last week by Grubb & Ellis/Paramount.

According to the report, office vacancy rates improved slightly from last year, but West Michigan’s office market currently is tenant-driven and will remain so through this year.

“Asking rates continue to fall while landlords battle over each deal,” the report says.

The only sector in which that isn’t true, according to the report, is in the medical market.

The report shows that vacancies in multiple-use medical properties are in the single digits and “asking rental rates for prime locations have been as high as $30 per square foot.”

Locally as well as nationally, however, asking rates for general office space have continued to slide.

In the downtown market, changes are occurring but they seem to be offsetting to a degree.

“In the Grand Rapids central business district,” the report adds, “vacant first floor space continues to be converted into retail uses for new restaurants and stores.”

The report indicates Renaissance Zone properties are impacting the central business district office market. Some Ren Zone projects have added new “loft” office space to the market, but part or all of other buildings have exited the office market thanks to their conversion to dwelling space.

That trend seems to be continuing into the rest of the year, considering proposals from Belford Development this week (see story above, “Front And Center Downtown Project”) concerning proposed condominiums on Monroe Center.

The report indicates vacancy rates have improved by nearly 2 percent downtown, in the airport’s environs and in the Burton-Breton submarkets.

Completion of new speculation buildings, however, have caused vacancies in the East Beltline corridor to rise 8 percent.

It’s a trend likely to continue because four new projects are slated for construction or completion in the East Beltline submarket by the end of this year.

The report says that the tenant-driven market is a result of lower interest rates and high vacancies that the economy helped create over the past three years. It predicts that competition for tenants is likely to continue holding lease rates down through the end of this year.

Also making it a tenants’ market is flat net absorption — a reference to the net change of square footage that is occupied from one quarter to another. The rate doesn’t seem to be changing.

The report says this indicates that many deals may entail movement by the same tenants from place to place within the market, rather than new tenants coming into the market.

The report indicates that nationally, absorption has attained so-called normal levels — a 10 percent to 12 percent vacancy rate. Locally, vacancy rates have hovered above 18 percent since the first quarter of 2003 when they rose sharply from 14.6 percent.

The report indicates asking rates continue to slide, with A and B office rates down from last year by 7.4 and 5.9 basis points, respectively.

“While the market is heading in the right direction,” the report says, it speculates that vacancies probably won’t decline to the 10 percent to 12 percent equilibrium or “normal” level before 2006.

The Grubb & Ellis report advises that more than 14 million square feet — 37 percent of it downtown — comprises the Grand Rapids office market.

The remaining 9 million square feet lie in 10 submarkets. In order of size they are:

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